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Marketing Group Thrives

Dave Schwerin, Wood Lake, MN, is a team player. He was just looking for a way to be more profitable 10 years ago when he and three other pork producers started offering packers regular semi-loads of hogs in exchange for better prices.The idea of pooling hogs to gain a better marketing position was fairly new to independent pork producers in 1988. After a decade of unprecedented pork industry ups,

Lora Duxbury-Berg | Sep 01, 1998

Dave Schwerin, Wood Lake, MN, is a team player. He was just looking for a way to be more profitable 10 years ago when he and three other pork producers started offering packers regular semi-loads of hogs in exchange for better prices.

The idea of pooling hogs to gain a better marketing position was fairly new to independent pork producers in 1988. After a decade of unprecedented pork industry ups, downs and changes, the group has not only continued to market together, but has grown and prospered.

"We decided one way to be successful was to make everyone around us more successful too," Schwerin says. "It is a lot easier for us to be successful as a group."

The group presently totals 30, with herd sizes ranging from 80 to 800 sows. Schwerin coordinates the group's marketing efforts, runs a trucking company tohaul the group's hogs, and operates his own 350-sow, farrow-to-finish operation.

Joining The Group "We've been learning for 10 years," Schwerin relates. "The big advantage to being at it this long, is that we've taken out a lot of the problem areas by default. The group's success still comes back to good cutting hogs and people who are willing to work together."

Hog quality remained the highest priority. "There were lots of opportunities for our group to be twice the present size, if we had sacrificed hog quality or cutability," Schwerin says.

In order to market with the group, producers' hogs must cut 51% lean or better. The required lean percentage is set during negotiations with the packer. The group has never had a problem meeting the quality standards, according to Schwerin.

The group also strives for consistency. "If you graph your kill sheet figures, we want the majority of the hogs in the 51-54% lean area. We don't want hogs scattered all over the board to make an average of 51% lean," Schwerin explains

Schwerin has served as the marketing group's coordinator since its formation. In the group's early days, he hauled the group's hogs to market.

"When we started out, it was hard to get trucking for one load of hogs every other week, or part of a load," he remembers. "The truck has to be at the packer when the packer wants hogs." Once again, Schwerin identified a need, and did something about it. He started a trucking business in 1991.

Trucker Holds Contract The trucking company, D&D Schwerin Inc., has helped the marketing group in several ways. The trucking company holds the master, written contract with the packer. This makes it easier for the packer to deal with one entity, versus holding separate contracts with each producer. The trucking company subcontracts with producers. The arrangement also places the greatest risk with the trucking company, instead of on each individual farm.

Schwerin is paid on a "per hundredweight" basis to run the organization, research and negotiate packer contracts. But the final decision on the packer and contract is made by the entire group.

The group members suddenly found themselves in an awkward situation in 1997 when the Dakota Pork packing plant in Huron, SD, closed almost overnight. The group received a fax on a Friday, saying the plant would not be taking any more hogs. Without warning, not only was their contract voided, they had no market for the next week.

It usually takes 4-6 months to gather the data and negotiate with packers for a new contract - but the group needed a place for the pigs immediately. Fortunately, they were able to divert hogs to Smithfield's John Morrell plant in Sioux Falls, SD. An outside consultant was hired to speed up the contract negotiation process, and a new contract was obtained within 30 days after Dakota Pork closed. "That was only possible because we hired a member of the packing industry as a consultant to work on getting another contract set up," Schwerin says.

The new, three-year contract is with John Morrell in Sioux Falls.

The group has a window contract, which includes a floor price and ceiling price paid to the producers. The price paid is set on a formula based on the cash market.

Schwerin sees the contract as a "team effort." He explains: "The pork industry has got to get it out of their heads that the packer is the bad guy. The packer is a business, just like we're a business. We've got to work together so we both can be profitable.

"We have to keep in mind that if the packer has to guarantee us price levels, then the packers are better off raising their own hogs. Our objective is to get people to sell on a weekly basis and to keep hogs on a weight matrix the packer wants to follow," Schwerin says.

The contract guarantees the packer a certain number of head will be delivered per year. John Morrell has the right to specify delivery days, but they can't demand more than a certain percentage of the year's hogs on a specific day. "John Morrell has asked for hogs when their numbers are short, but that is usually not a problem for us," Schwerin says.

Aside from the convenience of having the trucking company hold the marketing contract, Schwerin says having their own trucks makes it easier for both the producers and the packers.

"We can put loads together to meet our own schedule instead of trying to fit our schedule with that of a trucking company," he says. The trucking company only hauls hogs from group member herds.

Every Friday by 10 a.m., group members let Schwerin know how many pigs they plan to sell the next week. Schwerin then relays those numbers to John Morrell. Group members can send full loads, or smaller loads if necessary.

Producers choose the day they want to ship their pigs. Schwerin coordinates the loads and the trucking. Group members are all located within a 40-mile radius of Schwerin. They pay the trucking costs based on local competitive rates.

Trucker Involvement The truck drivers' responsibilities are not as simple as getting the pigs on and off the truck. The truck driver records how the pigs loaded and unloaded, and notes the weather and road conditions with every load. Every time the truck stops, the reason is recorded.

"We have documentation that follows the pigs all the way from the producers barn to the packing plant, if necessary," Schwerin relates.

The trucker is a key information link between the producers and the packer. Producers are contacted the same day the hogs are delivered. The trucker reports how things went at the packing plant and verifies the head counts and weights recorded on the packer's scale ticket.

If there was a problem, then the producers or Schwerin can get back to the packer right away. "This works better than waiting three days to get back to the producer with the kill sheet, and trying to solve problems after the fact," Schwerin says. "If we address problems right away, we have a better opportunity to resolve them."

Staying Competitive Schwerin believes pork producers and packers should work together to succeed.

"Once we have set our market price and established our contract, then our job is to make the packer as profitable as we can," he says. "If the packer is profitable and has done well with our hogs, it is easier to negotiate another good contract. Teamwork between the packer and producer is important. We have the luxury of a number of packers in the Midwest at this time. We need to give the packers the weight range and quality they need to stay profitable.

"It's my feeling we can compete," he continues. "You can run your farrowing operation as well as any really large producer. The cost per lb. of gain can be as good as a large producer can get. The only glitch in the system is the largest producers can sell volume. I have to say, if I were a packer, I would want what the consumer demands. The consumer demands consistency.

"Livestock production is not different than any other business in the world. Get together as a group of producers and you can offer the packer the volume and quality they need. In our case, we know we can offer quality. But what is seen as quality today may not be quality tomorrow. You have to keep talking with the packers and keep asking the right questions. Everyone within our group stays on top of what's happening in the industry. We keep watching the consumers."